Capital Inflows and Asset Prices - A Country Study of the United States, Switzerland and Denmark
(2015) NEKP01 20151Department of Economics
- Abstract
- Capital inflows can have beneficial effects for the receiving country, such as fostering economic growth. But they can also have severe negative effects, such as increasing financial vulnerability and overall macroeconomic instability. There is a widespread perception among academics as well as policymakers that capital inflows are correlated with asset prices. This essay aims to examine if there is a long-run relationship between capital inflows and asset prices. Three different measures of capital inflows and two measures of asset prices are examined, using time series data from the United States, Switzerland and Denmark. The time period studied is 1980Q1-2014Q4 for the United States and Denmark, and due to data limitations 2000Q1-2014Q4... (More)
- Capital inflows can have beneficial effects for the receiving country, such as fostering economic growth. But they can also have severe negative effects, such as increasing financial vulnerability and overall macroeconomic instability. There is a widespread perception among academics as well as policymakers that capital inflows are correlated with asset prices. This essay aims to examine if there is a long-run relationship between capital inflows and asset prices. Three different measures of capital inflows and two measures of asset prices are examined, using time series data from the United States, Switzerland and Denmark. The time period studied is 1980Q1-2014Q4 for the United States and Denmark, and due to data limitations 2000Q1-2014Q4 for Switzerland. The empirical results confirm that there is a long-run relationship between house prices and aggregated capital inflows for all three countries, but not for share prices or disaggregated capital inflows. The long-run relationship is estimated by a Vector Error Correction Model (VECM). The estimation results show strong evidence of a structural break in the years leading up to the global financial crisis of 2007-2008. The analysis of the time period preceding the structural break show that the factors determining the long-run relationship differ across the three countries. Furthermore, cross-country heterogeneity is found in the response to a disequilibrium. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/5469509
- author
- Olsson, Kerstin LU
- supervisor
- organization
- course
- NEKP01 20151
- year
- 2015
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Asset prices, capital inflows, vector error correction model, VECM, house prices
- language
- English
- id
- 5469509
- date added to LUP
- 2015-06-30 10:23:48
- date last changed
- 2015-06-30 10:23:48
@misc{5469509, abstract = {{Capital inflows can have beneficial effects for the receiving country, such as fostering economic growth. But they can also have severe negative effects, such as increasing financial vulnerability and overall macroeconomic instability. There is a widespread perception among academics as well as policymakers that capital inflows are correlated with asset prices. This essay aims to examine if there is a long-run relationship between capital inflows and asset prices. Three different measures of capital inflows and two measures of asset prices are examined, using time series data from the United States, Switzerland and Denmark. The time period studied is 1980Q1-2014Q4 for the United States and Denmark, and due to data limitations 2000Q1-2014Q4 for Switzerland. The empirical results confirm that there is a long-run relationship between house prices and aggregated capital inflows for all three countries, but not for share prices or disaggregated capital inflows. The long-run relationship is estimated by a Vector Error Correction Model (VECM). The estimation results show strong evidence of a structural break in the years leading up to the global financial crisis of 2007-2008. The analysis of the time period preceding the structural break show that the factors determining the long-run relationship differ across the three countries. Furthermore, cross-country heterogeneity is found in the response to a disequilibrium.}}, author = {{Olsson, Kerstin}}, language = {{eng}}, note = {{Student Paper}}, title = {{Capital Inflows and Asset Prices - A Country Study of the United States, Switzerland and Denmark}}, year = {{2015}}, }